Sample Chapter

That's how we like to start when we sit down to work with senior HR
professionals. We find that it is a good litmus test for assessing the
current state of HR in a company.

Most replies start with discussing the latest challenges or innovations
in HR practices (hiring people, training leaders, building incentive
compensation, doing HR analytics, and so forth), relating to business
leaders (having a voice at the table, getting buy-in), or managing the
increased personal demands of the HR job (allocating time, staying
upbeat in the face of overwhelming demands). That is, HR professionals
almost invariably define business as "HR business" and are
inclined to talk about their current initiatives in leadership training,
recruiting, engagement, or rewards—the areas where they focus
their attention on the job.

These efforts are important, but they are not the business. They
are in support of the business.

The real business is external: the context and setting in which the
business operates, the expectations of key stakeholders (customers,
investors, communities, partners, employees, and so forth), and the
strategies that give a company a unique competitive advantage. If HR
professionals are truly to contribute to business performance, then
their mindset must center on the goals of the business. They must take
that outside reality and bring it into everything they do, practicing
their craft with an eye to the business as a whole and not just their
own department.

Focusing on the business of the business enables HR professionals to add
meaningful and sustainable value. When they start and ground their work
with the business, HR professionals think and behave from the outside
in. Working from the outside in shifts the emphasis in a number of
subtle but important ways:

 Placement and promotion from the outside in: Customer
expectations set the standards for bringing new hires into the
organization and for promoting people into higher ranks. The new maxim
is: Rather than be the employer of choice, we want to be the employer of
choice of employees our customers want to work with.

 Training from the outside in: When experts teach,
delegates learn; when line managers teach, delegates act; when external
stakeholders teach, delegates act on the right things. So
customers, suppliers, investors, and regulators are invited to help
design the content of training to make sure that what is taught meets
external expectations. They also participate in training sessions as
delegates who are co-learning with organization employees, and they
present materials either as a live case study or as visiting faculty.

 Rewards from the outside in: Customers help determine
which employees are rewarded for their efforts. For example, an airline
we often travel with allocates a portion of its bonus pool to its most
frequent fliers, inviting them to distribute bonus coupons worth varying
degrees of value to deserving employees. By essentially allowing
customers to control 2 percent of the airline's bonus pool, company
leaders remind employees that the outside matters.

 Performance management from the outside in: Rather than
setting standards by HR doctrine, the department gives key customers the
opportunity to assess its performance review standards and tell the
company if those standards are consistent with their expectations. When
external stakeholders participate in assessing performance review
standards, leadership 360-degree reviews may be shifted to 720-degree
reviews that include customers and other external stakeholders.

 Leadership from the outside in: HR helps the company focus
on developing a leadership brand, where external customer expectations
translate to internal leadership behaviors. We found that a large
portion of the top companies for leadership involved customers in
defining competencies for their leaders.

 Communication from the outside in: HR makes sure that
messages presented to employees are also shared with customers and
investors, and vice versa.

 Culture from the outside in: We like to define culture as
the identity of the organization in the mind of key customers, made real
to every employee every day. This is a far cry from the inside-out
approach that focuses on how a company thinks and acts, as embedded in
norms, values, expectations, and behaviors.

Our message of HR from the outside in is simple to say but not easy to
do. Outside-in HR is based on the premise that the business of HR is the
business. This logic goes beyond the current state of the HR profession,
where the focus is on connecting strategy to HR.

We have been active participants in helping HR professionals turn
strategy into results. We now believe that rather than a mirror in which
HR practices are reflected, business strategy should be regarded as a
window through which HR professionals observe, interpret, and translate
external conditions and stakeholder expectations into internal actions.

So in this book, as in our conversations, we reply to, "Tell us about
the business" with a quick synopsis of business conditions followed by
implications for HR.

The Business of Business

The bar has been raised for HR; HR must create and deliver value in real
business terms.

If people are asked to name a business, most could quickly name a famous
company (such as Google) or a local establishment (such as a
restaurant). But naming and understanding a business are different
things. The appreciation of how a business operates requires a
three-tiered approach. First, understand the context in which the
business functions, including general societal pressures that encourage
or discourage it (such as the increased interest in and access to
knowledge enabled by rapid technology change that drives Google's
phenomenal growth). Second, understand the specific stakeholders who
shape and sustain the business, including customers, investors,
regulators, competitors, partners, and employees. Third, understand the
business strategy to uniquely position the business to serve
stakeholders, respond to general conditions, and build a unique
competitive advantage.

Business Context

Everyone experiences the changing context or general drivers of
business, sometimes without being consciously aware of those changes.
The abstract concept of globally connected economies becomes fiercely
concrete when Greece, for example, has an economic crisis, and the
distress reverberates around the world, increasing the cost of fuel in
London, Sydney, and New York. The "Arab Spring of 2011," where citizens
began redefining political institutions, indicates a concern with the
status quo and a reform mentality. The 30 million people online at Skype
at any given moment, the 900 million monthly users of Facebook, or the 3
billion searches a day on Google show that technology now enables
ubiquitous information and global relationships.

Omnipresent information outside a company changes behavior inside a
company. After a disappointing experience at a well-respected
restaurant, for instance, we wrote a negative review and posted it on
one of the many blog sites. Within hours, the owner and manager of the
restaurant contacted us to apologize and invite us to revisit the
restaurant so we could update our public review.

When informed HR professionals tell us about their business, they often
have a relatively long list of general trends that affect them.
Unfortunately, such lists may be skewed by personal experience,
overemphasizing(Continues…)